Applied Solar Technologies (“AST”) may be the largest RESCO in the world. They have provided hybrid energy equipment and manage over 2,800 cell sites in India, where they have an uptime SLA > 99.9%. AST have commenced a pilot with Helios Towers Nigeria. AST is also exploring opportunities to offer an energy service proposition in Myanmar, where TowerXchange met Sanjay Deshmukh, President of AST International.
TowerXchange: Please introduce Applied Solar Technologies (AST) to our readers.
Sanjay Deshmukh, President, AST International:
AST is an integrated renewable energy service provider. We’re probably the largest energy service provider outside of China, where equipment is sold on a capex basis, whereas AST is an ESCO.
The primary renewable we have deployed to date is a solar PV based off-grid hybrid power solution for telecom towers. AST builds and operates these solar installations and takes over the power supply management of each site. It uses a combination of solar PV, battery back-up and diesel generators making it a hybrid energy solution that optimises the usage of various sources through the AST power controller. The optimal usage of these sources results in decreased diesel consumption, increased battery life and reduced diesel generator maintenance and replacement costs, resulting in savings for AST’s consumers.
AST offers a fixed price solution to its customers after having factored all these savings and the price is indexed to inflation and to diesel price as both are not in AST’s control. So our customers see the savings from day one without having invested money in the site from their side.
AST was founded 2008 and is headquartered in Noida, India.
TowerXchange: The first question our readers usually have is “how proven is the solution in emerging market telecoms”? Tell us about AST’s track record as an ESCO.
Sanjay Deshmukh, President, AST International:
AST has been designing, deploying and managing energy services over the last five years. We have our solar hybrid systems installed on nearly 2,800 cell sites in remote areas of four different states of India namely Bihar, Uttar Pradesh, Rajasthan and Jharkhand, with an installed capacity of 12MW of solar panels. AST has over 70% market share in off-grid telecom in India. We have consistently delivered site uptime SLAs on the cell sites managed by us. Successful deployment of AST solar hybrid systems at our customer’s cell sites has enabled our customers to receive awards for their initiative in adoption of green energy.
We also serve banks, petroleum retail and dairy industry with off grid distributed renewable energy services and are serving commercial and private enterprises utilising rooftop solar applications. Our customers include blue chip companies such as Helios Towers and TOTAL PLC in Nigeria and Bharti Infratel, Indus, Idea Cellular, American Tower Company, Punjab National Bank, Bharat Petroleum and Indian Oil in India.
AST recently expanded into Nigeria and has successfully commissioned a solar hybrid system at a flagship petrol filling station of TOTAL PLC. This system has leak proof canopy designed by AST at the filling station, which is covered fully with Sunpower solar panels of 77.8 KWp capacity. This filling station has been operating with no DG, since April 2014.
We have also commenced a pilot with Helios Towers Nigeria, for whom we’ll have sites up and running in a couple of months.
Our priority target markets for international expansion are Africa with initial focus on Nigeria, Ghana, Uganda, Tanzania and Myanmar and Indonesia in Southeast Asia.
TowerXchange: What is AST’s ESCO proposition?
Sanjay Deshmukh, President, AST International:
Our mission is to offer highly reliable, turnkey energy services. We offer a fixed price contract that releases an economic benefit over customers’ current cost structure. Our customers don’t have to worry about cost overruns, and we provide a performance SLA, with penalties for non-performance. Working with AST means you don’t have to worry about how your sites are managed, it’s all our responsibility!
The risk of the initial capital investment and ongoing operations (including diesel refuelling) are taken by AST, in return for which we ask for a long term bankable contract with customers, with duration of at least ten years in the case of telecoms, with a fixed monthly fee plus escalators linked to the price of diesel and inflation.
TowerXchange: How is your ESCO business model funded and what is AST’s ‘digestive capacity’ – for example, could you take on power for one of the larger Nigerian portfolios currently for sale consisting of 9,000 towers?
Sanjay Deshmukh, President, AST International:
We are adequately funded for around 10,000 additional sites. Taking on large scale projects in Nigeria would not be a problem as we have a local partner in Nigeria with experience of managing telecom sites. We bring the technology and the know-how, our partner brings local knowledge and on the ground operations.
We are adequately funded for around 10,000 additional sites and, given AST’s performance and track record, raising new funding is not a challenge
Given AST’s performance and track record, raising new funding is not a challenge. AST is funded by three clean tech funds; IFC, Bessemer Venture Partners and the Capricorn Investment Group as equity and debt funding is primarily by IFC and OPIC. We recently secured US $150mn of debt finance from the Overseas Private Investment Corporation (OPIC) of the USA.
The keys to our investibility are that AST’s business model generates long term recurring revenue from blue chip customers such as TOTAL PLC, HTN, Bharti Infratel, Indus Towers, IDEA Cellular and American Tower, enabling us to make plans for substantial expansion. Also, no-one else has as much experience with the managed energy service business model as AST – nobody has deployed and managed so many hybrid sites, so we have unique experience of designing, deploying and managing off grid, hybrid solar energy solutions for telecom sites enabling us to deliver value to our customers.
TowerXchange: Speaking to emerging market towerco CEOs, one of their concerns about partnering with ESCOs is entrusting critical frontline O&M responsibilities to companies that sometimes don’t have frontline people on the ground to fulfil those responsibilities. How did AST scale your business and win your customers’ trust?
Sanjay Deshmukh, President, AST International:
Our first customer in India was Bharti Infratel, for whom we initially managed 500 sites. We took over the entire operation of those sites, including maintenance, diesel refuelling and security – there was no need for Bharti Infratel to attend the site for anything to do with passive infrastructure or energy. We managed the diesel generator, rectifier, grid connection – we don’t only take care of our systems, we maintain third party equipment too. We have created a dedicated team on the ground to manage operations and have consistently delivered performance leading to repeat orders from existing customers and enabling business from new customers.
Currently we manage nearly 3,000 sites in India, we have manpower of 2,500 on the ground, 150 of whom are our employees.
We built this substantial ESCO in India brick by brick. When we started out, we replaced all the people who had been managing the sites because they were used to operating in a certain fashion, and there were ‘vested interests’ that contributed to diesel theft, so we brought in an entirely new team, even down to the site security guards. This meant from day one the boundaries within which the site operates were clear.
In terms of selecting our partners, we identify companies that have experience of managing telecom sites at scale. They must have their own staff, not outsourced, and they must share AST’s belief in renewable energy and the managed service model – this ensures AST’s, our partners and our customer’s objectives are aligned. We work with our on the ground partners to build their operational capability, which leads to confidence that they know the job and have a commitment to performance. As a result, we are able to offer a 99.8% uptime SLA on the 2,800 sites we manage in remote and most difficult to operate areas of India, which we think represents performance excellence.
TowerXchange: Tell us about your preferred contract structure.
Sanjay Deshmukh, President, AST International:
Our contracts are fixed fee contracts with indexation to increase in fuel price and inflation with commitment from customer to avail our services for the period of 10 years. This structure is key to securing to investment and delivering returns over the period of the contract. To determine our fees, we evaluate investment required in hybrid solar system, diesel consumption after installation of solar hybrid technology based on the load on site, solar irradiation, PV installation capacity, with additions to cover manpower for operational management and diesel fuelling. Once we have added the margin we need to survive and attract financing, we typically release 10-20% of economic benefits compared to our customers’ current cost structure. We don’t work on a revenue sharing basis as operation of such contracts is extremely complicated and is impacted by many other factors.
Once we have added the margin we need to survive and attract financing, we typically release 10-20% of economic benefits compared to our customers’ current cost structure
It’s important that at sites where there is no economic benefit of installing solar hybrid technology, we transparently tell the customer that those sites are not suitable. We can still take on the burden of managing such sites, and still offer an opex model, but the economic benefit will not be as large as where solar can be used.
TowerXchange: What’s your view on the potential to extend ESCO business models and other distributed generation programmes for telecom to provide community power?
Sanjay Deshmukh, President, AST International:
AST have some experience of community power initiatives. In addition to cell sites, banks, ATMs and petrol stations, we also run two hybrid energy powered community centres in India. One is based on a microgrid, another supplies home lighting kits that are charged every day, and has space on the plot where small entrepreneurs can use power.
We feel it’s a good idea to integrate telecom energy systems with the community, but the challenge is that you can only sell surplus power, and someone needs to invest to create capacity for that surplus power.
When operators look at the economic benefit of installing remote cell sites with surplus power, it’s often not an economically viable concept. One of the biggest challenges is estimating the power requirement of a community, which can be surprisingly large and therefore expensive to fulfil. The variation in load increases the investment you need. While a telecom load is relatively consistent, the energy requirement of a community varies substantially across the day. Deploying a distributed energy solution capable of delivering peak demand community power throws the economics haywire.
In my experience working for Reliance Communications in the mobile business, later heading business development for Reliance Infratel (which owns 50,000 towers), and now as an ESCO, I have fair understanding of the way stakeholders in telecom industry think. Telcos want to have community power projects running alongside remote cell sites, it’s good for their reputation and it can drive consumption of minutes and megabytes, but the reality is that there is a finite amount of funding for CSR-motivated initiatives – the economics and the investibility of community power must be improved.
TowerXchange: Having met you in Yangon, I should ask your view of the rollout in Myanmar and the opportunity for the ESCO business model to work here.
Sanjay Deshmukh, President, AST International:
The reality is that currently people are struggling to meet rollout obligations in Myanmar. As a result, the first priority is just going to be to meet rollout obligations, so renewables and energy efficiency will not become a priority until a 6-9 month timeframe. The first towers must be installed and stabilised first.
Nonetheless, every operator or towerco will be looking at the energy as a service model here, so AST see huge potential in Myanmar. Many energy equipment suppliers are interested in the market, but how many are proven in providing energy as a service?
For energy as a service to work and be investible in Myanmar, the technical design specifications have to be practical and it needs to be possible to implement whilst delivering economic benefit for all stakeholders.
The challenges in Myanmar are that to deliver service, you need to be well connected with the community, and communication is a challenge in rural areas, where English won’t help.
We’ve been meeting with prospective local partners here in Myanmar. There are companies with relevant experience, who need little training. It is just beginning and it will take some time for ESCOs and potential local partners to understand each other and build a level of trust. Once people work together for some time it will evolve. The people of Myanmar are systematic, willing to learn and hard working. The reality is that a lot of jobs in a complex service operation need minimal technical skills but efficient communication and so communication skills are the greater obstacle.
TowerXchange: To sum up the interview, when selecting an energy service provider, what factors need to be considered by MNOs and towercos?
Sanjay Deshmukh, President, AST International:
When selecting an ESCO partner, MNOs and towercos should consider four factors:
1. The experience of the ESCO in designing customised energy solutions for each site and selection of good quality components
2. The optimal design of solar hybrid systems, including installation and project management capabilities
3. Monitoring capabilities – not just RMS because that is easy – how quickly they react to alarms is key
4. Your energy service provider’s commitment to supporting your SLAs
If the Energy Service Provider is not strong enough or proven on any of these four factors, they’re not good enough.
Critically, ESCOs are partners not vendors – if you try to negotiate a deal where you maximise all the benefits yourself, your ESCO partner will not have sufficient margin to be investible and they will not be a stable, long term partner. In order for ESCO business models to work, the economics of the deal have to be value accretive for all stakeholders in the value chain. Your ESCO’s operations on ground make all the difference – understanding each other and taking a partnership approach needs to be learned over a period of time.
